How to make your business more attractive to potential investors with EIS and SEIS
The UK is a leader for new business startups. Whilst investment is readily available, getting hold of it is another matter. Around 12,000 tech companies started business in 2018, so competition for investment is intense.
How to Make Your Business More Attractive to Potential Investors with EIS and SEIS
The United Kingdom is the go-to place for business start-ups. Between 500,000 to 700,000 businesses are established every year in the UK, making it the home of entrepreneurial spirit. At the start of 2020, almost 6 million small businesses were operating in the UK. If these entrepreneurs can do it, so can you.
It’s no surprise that the UK is an ideal place to launch a start-up, with investment readily available for you to take advantage of. Getting your hands on this funding can be difficult, especially if you’re new to the world of business. Not every start-up can get funding, with applications becoming more competitive every year.
FD Capital are here to help you maximise your chances of securing funding to get your start-up off the ground. Read on to find out more about how EIS and SEIS can help your business.
How can I Maximise My Chance of Getting Funding?
Successive UK governments have worked to make the country a welcoming place for entrepreneurs. Political leaders often speak of the UK as a “nation of shopkeepers” with the entrepreneurial spirit at the heart of society. The UK offers substantially more incentives and schemes for start-up businesses than other countries, including EU member states.
Two of the most popular tax incentives offered by the UK government are the Enterprise Investment Scheme (EIS) and the newer Seed Enterprise Investment Scheme (SEIS). These schemes are designed for early intervention for new start-up businesses to offer them funding to get their start-up off the ground. The EIS and SEIS incentives serve the purpose of attracting angel investors and encouraging them to invest in innovative start-ups through seed investments by offering the investor tax benefits.
If you’re looking to attract investors to your start-up to get you started early on, making your business EIS eligible is vital. EIS eligibility is essential to boost your fundraising potential.
How Much Can My Business Get from EIS Funding?
Your business can raise a maximum of £12 million through EIS funding. However, you cannot raise more than £5 million through EIS funding over any 12 months. A potential advisor can only invest a smaller amount of £1 million during each tax year within EIS eligible businesses. If you are looking to raise a smaller amount of funding – up to £150,000 – then SEIS is a more appropriate funding facilitator for your business.
How To Become an EIS Qualified Business
If you want to take advantage of the EIS incentive, your business needs to meet various requirements to qualify for the scheme. If an investor is looking to take advantage of the tax reliefs offered by the EIS programme, the business has to have and maintain its EIS status for three years after the investment.
For your business to be EIS qualified, it must:
- Have a permanent UK set-up
- Have gross assets worth no more than £15 million before shares are issues or £16 million afterwards.
- Have fewer than 250 employees who work full-time.
- Not be trading on the stock exchange or have any arrangements that involve being quoted on a stock exchange that is recognised.
When the share is issued and three years afterwards, your business must:
- Remain independent and not under the control of a third-party company. No more than 50% of shares can be owned by a different company.
- Be conducting a qualifying trade.
At the time of the share issue AND for three years after the share issue, the company must:
- Be independent; not under the control of another company (or not have more than 50% of shares owned by another company).
- Conduct a qualifying trade
Any money that you raise through the issuing of EIS shares has to be used to enable the growth and development of your business. You cannot use these funds to make acquisitions of a third-party company’s shares or certain trading assets. You might be interested in: Business Asset Disposal Relief – Formerly Entrepreneurs Relief.
What is ‘Advance Assurance’, and Do I Need It?
Before an investor purchases shares in your business, they will want an ‘advance assurance’ from HMRC that ensures them that the investment will qualify under the EIS or SEIS programmes. You’ll often see this process referred to as ‘HMRC EIS/SEIS clearance’, and it’s a step you don’t want to overlook.
You want to reach out to HRMC to apply for advance assurance to prove to potential investors that you meet the EIS requirements. Without this assurance, an investor is unlikely to provide funding for your company.
It’s important to know that getting advance assurance can be time-consuming. You want to make sure that you account for this when planning how to approach investors. This process is more streamlined and easier to manage when you work with a Finance Director with experience collaborating with companies to fundraise through private investment.
Your advance assurance application to HRMC will include:
- The amount you hope to raise through investments.
- Your business plan, including any financial forecasting.
- (if available) your latest set of accounts.
- Evidence of activities and trading carried out by your business, including costs for these activities.
- Details of the venture capital schemes that you have previously utilised for investments, including the amount raised and dates of investments.
- The latest copy of the Articles of Association and Memorandum for your business, including any upcoming changes.
- Copy of the documents you intend to use for potential investors.
- Copy of agreements between your company and any potential shareholders.
- A letter signed by a director or trustee if a Financial Director is handling your advance assurance application.
- Your completed EIS checklist.
- Other relevant documents which prove your business meets the conditions to qualify for EIS.
How Do I Find Investors for My Business?
The EIS incentive typically attracts individual investors looking to take advantage of the related tax incentives that come with the scheme. You’ll often come into contact with these potential investors through business groups and crowdfunding initiatives. You never know when you might come across a potential investor, so you always want to be on the lookout.
How Can FD Capital Recruitment Help My Business?
At FD Capital, we’re experts in headhunting and recruiting skilled finance directors who have experience in fundraising for small and medium businesses. We focus on helping you find a Finance Director or CFO to work with your business on an interim, part-time, or full-time basis. FD Capital is here to help you with your fundraising and HMRC clearance for EIS and SEIS fundraising. You can get in touch with our team by calling us at 020 3287 9501.
Finance Director and CFO Services
Formed in 2018 FD Capital Recruitment was founded with the objective of becoming a leading provider of Part-Time Finance Directors, our idea being to bring the skills and experience that finance directors have gained in larger corporates and plc’s and make them available to SME’s on fractional time basis. We have grown and grown and had our busiest year so far in 2020 with some of our team working six days per week.
We operate across the London and south east and West Midlands areas, our ambition is to grow the business to a national operation. Our team is made up of finance professional and experienced recruiters who between them have an extensive network of FD’s and CEO with a strong database of companies we have connections within. See also our FD Services page for more information.
How can FD Capital Recruitment help?
We are experts at recruiting and headhunting Finance Directors with PE house and fund raising experience. As our name suggests we focus just on Finance Directors and CFO’s either Part-Time, Full-Time or Interim. So if you need help with a fund raising or to get HMRC Clearance for your EIS/SEIS fund raise then reach out to us 020 3287 9501
Adrian Lawrence FCA with over 25 years of experience as a finance leader and a Chartered Accountant, BSc graduate from Queen Mary College, University of London.
I help my clients achieve their growth and success goals by delivering value and results in areas such as Financial Modelling, Finance Raising, M&A, Due Diligence, cash flow management, and reporting. I am passionate about supporting SMEs and entrepreneurs with reliable and professional Chief Financial Officer or Finance Director services.
